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"OBAMACARE" 101 FOR REAL ESTATE: 2012

12/28/2011

   We have all had to deal with the fact that Barack Hussein Obama has been our 44th President for the past three years.  While his impact on international issues, medical care, and the U.S. economy as a whole, has been more significant than his impact has been on real estate, as a contributor in the real estate column, I have dedicated this article to analyzing the affects that a second term of President Obama may have on the fortunes of the U.S. real estate industry.

   President Obama has been noteworthy for his tilt in many areas:
•    His efforts in the health care area seek to transform our country into a more socialized (perhaps more affordable) state of medicine.
•    His world view with most other countries falls far to the left of most other recent Presidents.
•    His effort to increase and expand national social programs is second to none.
   Notwithstanding his actions during his first term, President Obama’s policies (or lack thereof) have actually been quite good for the real estate industry.
•    His rescue of the banking industry from the nadir of 2008 and 2009 effectively provided some level of financing capability for the real estate industry during this recession.  Obviously, without financing, real estate values would be much lower.  It would be in a state of free fall. In effect, Obama’s support of the Banking industry has supported real estate values in many sectors throughout the United States.
•    His failure to enact any new taxation on the real estate industry (while perhaps unintentional) has given some breathing room to real estate investors of all types. Although we witnessed nationwide demonstrations protesting the low capital gains tax enjoyed by real estate investors, no legislation has yet been introduced to change this tax break. Additionally, the tax code provides generous accelerated depreciation schedules, reducing the income tax paid for real estate investments. We have the Republican controlled House to thank for this development as well.
•    REITs (Real Estate Investment Trusts) enjoyed a resurgence since the beginning of 2010 that can only be explained in terms of the economic stimulus and programs enacted by the Obama administration.  It is important to note that REITs control a very large percentage of the high-end real estate market throughout the country, and their success keeps the real estate market afloat.  
   Please don’t take this article as an endorsement of President Obama for a second term.  I am merely stating my opinion.  For whatever reason, the Republican Party has failed to mount a significant challenger at this point.  You can only hope that some formidable Republican breaks out of the pack and is able to give the President a run for the money.  

   I will not even attempt to predict an election that is still ten months away.  A great deal can happen in ten months.

   However, I can make a few predictions as to what the typical real estate investor is facing if the President wins a second term:
•    Obama will be focused on making a name for himself in the history of the United States and in the world at large.  I think he will ignore any full-scale amendments to the Federal Tax Code.  This, of course, is good for our industry because when you know what you are dealing with from a tax and economic viewpoint, it is easier to plan and project.  Radical change is never good for any industry, but especially the real estate industry.  You simply have to hark back to the 1986 tax reform act which essentially rewrote the entire tax code, wreaking havoc upon many real estate investments.  This reform instituted by President Ronald Regan, caused the huge reduction in real estate values between 1987 and 1993.  The drops in value across the board of every real estate sector were far greater in that 1987 recession, than in the present recession that we are currently witnessing.
•    The housing sector will continue to move sideways, if it will move at all.  Obama will be likely to attempt to pass additional stimulus relating to the purchase of single-family homes, condos and coops.  This stimulus would probably not be fought by the Republicans, since it benefits middle America to a very great extent.
•    Finally, Obama will likely not tinker with economic policy controlled by the Federal Reserve Bank (also known as the “Fed”) because that policy seems to be working in reducing the effects of the 3½ year recession in the United States.
   One parting thought for those who are fearful of a second term for President Obama.  Our concern, obviously, extends to our fellow Jews in Israel and elsewhere.  My view is that Ha-Shem has protected us all this time and even during Obama’s first administration.  Lev Melachim Vesarim beyad Hashem and we cannot predict any leader’s policies.

   Next week, I hope to resume the series on real estate investment.
 
 
 

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